Time to invest in S-REIT now? Which counter stands out?

Time to invest in REITs?

Two months ago we saw one of the fastest drop of our STI index the last few year. It came down about 10% in just short one month time frame. Practically wiping out all the gains we had from the beginning of the year.

Since then the index have recovered slightly. Now it is backed  up to about 3200 level from the low of 3070 level. Hitting slightly above the 200MA line but still below the 50 and 100MA. That to me, is a good sign of some recovery. No doubt there will be some roller coaster ride ahead of us, but from pure technical point of view, this is an interesting juncture to load back up on some stocks. Especially since I have off loaded a few 2-3 months back.

I want to beef up my yield generating portfolio so I went hunting for goods REITs. I did some research and here is what I found out about the sector in general.

Sector research

1) The average P/NAV for S-reit is about 1.09. So in general most Reits are fairly priced. Not too high not too low. So if I want to invest in one, I need it to offer me some discount to act as my buffer.

2) The average Yield is about 5.55%. Not very attractive but not too shabby too. I would prefer it to be around 6% or more.

3) The average debt/equity ratio is about 0.6. A bit on the high side.

REIT filtering

Based on the above information, to took out my excel spreadsheet and start to filter a few stock for my watch list. the criteria I used for filtering are:

1) Yield/(P/NAV)- No fixed cut off number here. But I will only look at the top 5-6 stock that return the highest value. the usefulness of this single ratio is it combines the top 2 factors in considering REITs into one simple ratio. It basically tells me which counter will offer me the best “discount” for what I am looking for.

2) I look at the yield itself. I will not be interested in any counter that offers me less than the industry average or my target of at least 6%. So anything less than 6% is out for me.

3) Next I look at the counter’s leverage. Debt to Equity ratio is one factor plus I also look at the company’s short term loan and their ability to withstand any short term spike in lending interest rate.

My shortlisted counters

Here is a snapshot of my filtering spreadsheet. The top choice for me is Suntec Reit. A lot more “green”color. hahah.

S-REIT filter
S-REIT filter

I also appreciate the fact that Suntec have successfully restructured their portfolio to focus more on office rental space rather than retail. As of the last report Suntec Reit have about 70% of their lettable area for offices. Plus that fact that their upgrading work in Suntec city is going smoothly, so I think the potential for higher yield is there.

But wouldn’t the talk of increasing lending rates affect the attraction of  Reits? What do you think? What do you think my cut lost should be?

Note: this article first appeared in http://myfcoach.com/time-to-invest-in-s-reit-now/ (10 mins earlier lah)

5 Comments

  1. Tony Milton on July 18, 2013 at 7:17 pm

    Hi Roland,
    Can you tell me where you source your data from……..the Straights Times or a website?

    • roland on July 20, 2013 at 11:15 pm

      Hi Tony, I got the data from Shareinvestor.com. It is a paid service that allows me to see all the important financial ratios and numbers in one page. Do check it out!

  2. wickedpork on July 26, 2014 at 11:02 pm

    any updates on whether it is a good time to buy reits now, Roland, and which counter? thks!

    • roland on July 26, 2014 at 11:39 pm

      Hi Wickedpork,
      You have actually missed the last run up in REITS a few months ago. The trend really swing positive around April time frame when US fed declared that the interest rate will be low till middle of 2015. A lot of investors was holding back on REITS for the fear of high interest rate eating into earnings thus dividend. But when investors know interests rate is not going anywhere and REITs can give as high as 8% yield, all rushed in.
      Right now, I am still bullish on Japanese or Singapore commercial reits. You should know my picking criteria and right now there are a few that is still under valued with pretty reasonable yield. Hope that helps!

  3. wickedpork on July 29, 2014 at 9:37 am

    thanks Roland… let me give it some thought.

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